Debt is always an issue. Some people are drowning in it. Some are fighting to stay out of it. Either way, it can be a battle of willpower and endurance. Debt also keeps people from realizing their dreams of homeownership. So today we are going to take a look at demolishing debt strategies with two similar but different methods.
If you are a visual person, you might enjoy this 10-minute video describing the pros and cons of both debt strategies. Next Level Life does a great job covering both the debt avalanche and debt snowball fairly.
Debt Avalanche
The debt avalanche looks at interest rates more than the balance of your debts. It focuses on paying off the debt with the highest interest rate first. For example, a credit card debt of $8,000 with an interest rate of 18.4% would be eradicated before a $16,000 student loan debt with an interest rate of 4.25%.
As soon as you pay off the highest-interest loan, then you take all the money you threw on that debt each month and tackle the next highest-interest debt. With each debt you pay off, the more money you have to pay on the subsequent debt. In the end, you actually save more money with this strategy by getting out of high-interest loans faster. This is the draw for most people who decide to use the debt avalanche method.
Debt Snowball
On the other hand, the debt snowball looks at the balance of your debts instead of your interest rates. It focuses on paying off the smallest balance first. So, you would focus on a $2,500 credit card debt before tackling a $50,000 student loan debt. Each time you pay off a debt you continue to pay that minimum payment on the next smallest debt. This allows you to throw more money at your problems as you get out of debt.
Employing the debt snowball allows you to pay off your smallest debts in relatively short periods. This plays a huge role in your ability to stick with the program. You see progress. Less bills arrive at your home. You can check off debts on your list. Many people find this the advantage to this method as it spurs them on to continue getting out of debt.
Dave Ramsey’s Advice
I believe that you should pick the demolishing debt strategy that works best for you. If you stick with either strategy, you will become debt-free. However, Dave Ramsey has his opinion that I think is valid since he has so many years of experience helping people become debt-free. He promotes and advises people to employ the debt snowball method mainly for the psychological reasons addressed above. To learn more, read this article from Ramsey Solutions.
The Bible tells us that “the borrower is slave to the lender” (Proverbs 22:7). Getting out and staying out of debt gives people freedom and options, including buying a dream home. Demolishing debt with either of these strategies will allow you to enjoy this freedom. Purpose to get out of debt in 2025. You still have 7 months to make a dent in your debt using an avalanche or a snowball. Which do you prefer?